Odisha Chief Minister while addressing the Odia diaspora in Dubai on June 29 this year, had indicated about early operation of direct flights between Bhubaneswar and Dubai. That Odisha Government had been going ahead with a viability gap funding (VGF) plan for an air link between the two cities was indicated by Government officials present during the Dubai visit of the Chief Minister. VGF is a government grant to support infrastructure projects that are economically justified but fall short of financial viability.
While attending the Chief Minister’s visit, Chief Secretary had clarified that government would subsidise airlines willing to operate direct flights between the two cities. It is believed that government would provide subsidy to flight operators for a limited period of time and expect that the operations would be financially viable within that period. Such an arrangement had been taken recourse to not long ago, for flights to and from Kuala Lumpur and Bangkok. The experiment failed. Benefit to the economy from this expensive experiment was little. Footfall of foreign tourists on Odisha soil remained negligible. With this experience, what prompted government to repeat the VGF model for Dubai connection is not clear.
It seems almost everyone in Odisha, including even those who do not intend flying abroad, is now happy with the recent Cabinet decision on Bhubaneswar getting air connectivity with Dubai, Bangkok and Singapore. It seems Government had invited bids form operators and received only one offer. Why the Government accepted the single offer is not clear. Details like when the good day would arrive and flights to Dubai, Bangkok and Singapore will commence; frequency of these flights, timings of arrival and departure are still not disclosed. Nor are fares indicated. Not a word has been said about who would fix the fare if all of it would be deposited with the government. What the operating cost would be is not known either. Press report indicated that Government would pay the operator the operating cost. Present moment, it seems, is for clapping and rejoicing.
In the absence of these details, one cannot make accurate assessment about the likely cost of this announcement to the taxpayers. Even then, an attempt has been made to make a rough estimate of the likely cost. These sectors have not looked economically viable to established operators. Otherwise Bhubaneswar would have been having direct links with the three international gateways, or at least one or two of them. Apart from India’s mega cities like Mumbai, Delhi, Chennai, Hyderabad, Kolkata, Bangalore and Ahmadabad having adequate number of direct flights to Dubai, many other cities like Amritsar, Chandigarh, Lucknow and Nagpur besides a few cities of Kerala too have direct air connection to Dubai. In case of Singapore, besides the mega cities, Vishakhapatnam and Madurai too have direct flights. Lucknow has a direct flight to Bangkok.
As things stand now, the passenger-load for the three cities from and to Bhubaneswar would be modest. Flights to Kuala Lumpur and Bangkok from Bhubaneswar in the past indicated low passenger load. While Dubai-Bhubaneswar sector could show somewhat higher passenger load, it could be much lower than 70 per cent. Singapore and Bangkok would offer much lower occupancy. In this analysis, it has been assumed that 70 per cent passenger load in Bhubaneswar flights to/ from Dubai, Singapore & Bangkok would ensure a break even operation and the average occupancy for the three routes would be only 40 per cent. The average fare for these sectors has been assumed at Rs 20,000. On this basis, one up and down flight at 40 per cent occupancy for all the three sectors in a 186 seater aircraft would need a support for about Rs 65 lakh. 100-day flights per year (twice a week flight) would cost Rs 65 crore.
In the instant case, how long the proposed viability gap funding arrangement would continue is not known. The single offer has reportedly been accepted. Whether the offer binds the government in an open ended arrangement is not known either. The rough cost estimate indicated above is an indicative figure. Actual cost could be much higher. What advantages would flow from this arrangement are not clear. The cost benefit ratio of the proposed investment needs to be placed in the public domain.
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